When the market transitions into a stock pickers market, that will be when a bottom is put in. Right now, everything is being sold. A stock could be up one day because of earnings, like MSFT, but then plunge the next day in a general market sell off. This type of action is “baby being thrown out with the bath water” and it indicates that a market bottom has yet to be put in.
We will know when a bottom has been reached when we transition from indiscriminate selling to offset losses elsewhere, to a stock pickers market. This will occur when value investors step in and buy stocks with good valuation and growth potential. We will perceive this action as being in a stock pickers market.
Right now, you should be in the safety of cash as we wait for evidence that dip buyers are stepping in.
Intra-day, we have broken through weekly support on SPY. Now we are testing the last major support level which is formed by the lows on February 9, 2018, and April 2, 2018 (gold line):
Do not keep playing the bounces in this market as you will die by a thousand small pricks. HFTs are slowly draining the accounts of retail traders. Staying in cash thwarts their plans and makes them drain the accounts of each other. Let’s watch the HFTs and quant traders eat each other.
In summary, do not try and predict the actual bottom. Instead, looks for a capitulation move where the market has a big down day but comes roaring back by the close which will form a long lower shadow on the daily candlestick. Not all market reversals have long lower shadow candlesticks but a lot of them do. That will be our first sign that value traders are stepping up their bottom feeding activities as we transition into a stock pickers market so be on the lookout for dip buyers but don’t actually be a dip buyer yourself. When the mainstream media starts using the phrase “stock pickers market”, that will be our sign that a bottom is in. For now, stay in the safety of cash and the bushes as bodies pile up on the battlefield.